Bank keeps rates on hold as manufacturing improves

The Bank of England kept its monetary stimulus policy on hold yesterday as a key survey pointed to an accelerating pick-up in manufacturing output.

As widely expected, the Bank's Monetary Policy Committee declined to add to its £375bn stock of gilt holdings. But unlike last month, the MPC did not release a statement to explain its decision.

The decision coincided with the Markit/Purchasing Managers' Index snapshot of the manufacturing sector for July, which showed that activity grew last month at its fastest pace since February 2011.

The index rose to 54.6, from 52.9 in June, and any figure above 50 indicates expansion. Factory output grew by 0.4 per cent in the second quarter of the year, but remains 10 per cent below its 2008 peak.

Next week, the Bank of England's new Governor, Mark Carney, will unveil the MPC's conclusions on the merits of the Bank issuing "forward guidance" to financial markets on the future path of interest rates. "We may [also] hear a little more from Carney next week as to whether statements are set to form a core part of his communication tool kit and whether he intends to make broader changes to the Bank's communication strategy," said Victoria Clarke, an analyst at Investec.

The European Central Bank also kept interest rates on hold yesterday at 0.5 per cent. At a press conference in Frankfurt the ECB president, Mario Draghi, reiterated the guidance he gave last month that rates would "remain at present or lower levels for an extended period of time".

He also said he expected to see a "gradual recovery in economic activity the remaining part of the year and 2014".